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Article Excerpt
Abstract
Ensuring a supply chain is secure from intentional as well as unintentional incidents is critical in today's global economy. However, some firms place a greater level of strategic importance on supply chain security than others. This research compares firms in the food industry that place a high level of strategic importance on security to firms that do not place a high level of strategic importance on security. The research assesses the measures employed by each group and resulting performance. Findings indicate that firms considering security to be a strategic priority perceive higher levels of security implementation and better security performance. Firms that place a high strategic priority on security show a greater ability to detect and recover from security incidents both inside the firm and across the supply chain in comparison to firms that place a low strategic priority on security. Cluster analysis grouped firms into high and low security performance categories in a manner consistent with the strategic priority construct and demonstrates the security measures that are likely to define high and low security performance.
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Supply chain managers are increasingly realizing that supply chain security goes beyond theft and smuggling (Thibault, Brooks, and Button 2006) to include the potential impact of a supply chain disruption. A disruption may result from either an intentional incident (e.g., disgruntled employee sabotage, counterfeiting, terrorist activity) or an unintentional incident (e.g., hurricane, accidental contamination of product). A recent study finds 69 percent of chief financial officers surveyed indicate that supply chain disruptions resulting from a supply chain security failure are a major threat to revenue sources (Elkins, Handfield, Blackhurst, and Craighead 2005). As an indicator of the potential short-term financial impact, an announcement of a supply chain disruption is associated with a 10 percent decrease in shareholder value (Hendricks and Singal 2003). When studying long-run impacts on performance, Henricks and Singal (2005) found that firms that incurred a disruption had a mean return of close to -40 percent over a three-year period. This highlights that negative financial consequences of a disruption are not only immediate, but also linger.
While the financial impact of a disruption is clearly problematic, additional negative consequences exist with respect to disruptions caused by a supply chain security failure. In particular, loss of consumer confidence in a firm's brand is a key concern prompting more attention to supply chain security. Consumer safety and product liability is another driver of enhanced security initiatives. Yet preventing security failures is no small task, considering that as many as twenty-five different entities participate in the average global supply chain (Russell and Saldanha 2003).
Sheffi (2001) posits that a supply chain is only as strong as its weakest link. Thus, the internal security efforts taken by one supply chain partner are potentially nullified by the lack of security efforts taken by another and/or the lack of coordination between supply chain partners. In order to ensure complete supply chain security coverage, each firm must employ internal (those to protect the firm's facilities) and external security initiatives (those that reach outside the four walls of the firm, including service providers and supply chain partners).
Despite challenges, some firms place a priority on supply chain security and implement advanced security initiatives (Rice and Caniato 2003). Research has illustrated security "best practices" (Elkins, Handfield, Blackhurst, and Craighead 2005) and benchmarks of high performing firms' security capabilities (Closs, Speier, Whipple, and Voss 2008). However, managers still struggle with how to implement a comprehensive security plan (Closs, Speier, Whipple, and Voss 2008). This is partially due to a preponderance of potential security techniques but a lack of knowledge pertaining to the effect of these techniques on security performance.
While a great deal of conceptual and qualitative work has been published regarding supply chain security, there is limited quantitative, empirical supply chain security research. Table 1 highlights recent research focused on security from a supply chain perspective. As indicated in the table, the vast majority of published articles in the area of security are conceptual or qualitative, with just two of twenty-one articles having some quantitative component; one of which analyzed secondary data. Almost half of the research outlined in Table 1 focused on defining supply chain risks and/or outlining risk mitigation strategies. As such, much of the research has been descriptive (e.g., what types of risks exists, what initiatives leading firms are taking to improve security). This article discusses research that moves beyond qualitative and conceptual descriptors to examine high performing firms from an empirical perspective and evaluate security practices with performance implications.
The purpose of this research is to compare and contrast firms that place a high strategic priority on security and firms that do not place a high strategic priority on security in terms of (1) the extent to which these firms employ security initiatives; (2) the types of security initiatives employed (internal versus external); and (3) whether or not differences exist in the security performance between the two groups. In the next sections, a literature review is provided, hypotheses are developed, and the research methodology is discussed. Finally, results are provided, followed by a discussion and conclusions.
LITERATURE REVIEW
Supply chain security management is defined as "the application of policies, procedures, and technology to protect supply chain assets (product, facilities, equipment, information, and personnel) from theft, damage, or terrorism, and to prevent the introduction of unauthorized contraband, people, or weapons of mass destruction into the supply chain" (Closs and McGarrell, 8). A supply chain must be both secure and resilient to respond to, and recover from, unexpected disruptions (Rice and Caniato 2003). Through supply chain security initiatives, firms reduce vulnerability, thereby reducing the chance of a disruption, while improving their ability to recover from disruptions when they occur (Sheffi and Rice 2005). However, for improved supply chain security, initiatives should become strategic priorities that fundamentally change the operating structure of the firm (Sheffi and Rice 2005).
Firms implement security initiatives for many reasons. The Aberdeen Group (2004) indicates that firms implement security initiatives to protect brand image; meet customer and trading partner requirements; and ensure that raw materials are produced in a suitable manner through increased product tracking and tracing. Other studies reinforce the government's influence in bringing about security programs (EyeforTransport 2004). Government influence and concern over outsourcing activities are particularly prevalent in the food industry, where food processors are mandated by the Bioterrorism Act of 2002 to be able to trace raw materials and output one step up and one step down the supply chain (USFDA 2003). Firms that recognize the implications of a security failure are likely to place a high strategic priority on security as a method of preventing supply chain disruption or perhaps even as a means of developing a competitive advantage (Lee and Whang 2003).
However, many firms have not invested in improving security beyond the minimum level due to difficulty in justifying security investments (Peleg-Gillai, Bhat, and Sept 2006). Firms may not see the benefits of enhanced security or may be unable to make an adequate business case for security implementation due to the lack of penalties for non-compliance (Unisys 2005) as well as difficulty assessing the resulting benefits (Peleg-Gillai, Bhat, and Sept 2006). Additionally, some managers do not perceive their firm is vulnerable to security threats because their firm handles less critical commodities (Rogers et al. 2004). Other managers feel that their security obligations end when they relinquish control of goods to a supply chain partner (Rogers et al. 2004). Finally, since supply chain security is a relatively new topic that has largely arisen due to recent terrorist actions, some firms are slow to enhance security due to a simple lack of knowledge. Firms may not understand the security initiatives that have the greatest positive effect on security performance. One study even cites a need for government regulation in order to inform firms of the initiatives that should be implemented and to standardize industry security measures (Unisys 2005).
Rice and Caniato (2003) segment firms implementing security initiatives into two categories: basic and advanced. Basic initiatives are "traditional activities that become almost standard practice," while advanced initiatives are more "forward-thinking" (Rice and Caniato 2003). Best-in-class companies are "proactive" in building supply chains that can respond to and recover from major disruptions (Elkins et. al 2005). Sarathy (2006) indicates that firms with strong brands are likely to be even more concerned over security since a failure...
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